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What does separation of liability do?

Sometimes, a person encounters an unpleasant surprise after divorcing their spouse. This could include an unpleasant tax surprise. For one, they might be informed by the Internal Revenue Service that their spouse underpaid taxes on joint returns they had filed. Upon such a discovery, one thing a person might be quite worried about is that they could face a large tax liability as a result of their ex-spouse’s conduct.

Now, when a divorced person (or certain other types of individuals) in this situation didn't have prior knowledge of their spouse’s incorrect tax conduct, there are certain types of relief they could be eligible for that would limit their tax liability.

One such type is separation of liability. Under this form of relief, the tax liability for the underpayment is split up between the innocent spouse and the spouse who engaged in the incorrect conduct. This makes it so the innocent spouse is only responsible for portions of the liability allocated to them.

Now there are various things that impact whether a person would be eligible for this relief. Among the things that could block a person from getting such relief is if the IRS finds that they had actual knowledge of their spouse’s conduct or were transferred property by their spouse for the purposes of avoiding taxes. There are various rules regarding what would qualify as actual knowledge or a tax-avoidance-aimed transfer of property.

So, there are many factors and details that could end up being significant ones when a divorced person is requesting separation of liability or other innocent spouse relief. Skilled tax lawyers can give individuals here in Missouri guidance on the various processes and rules related to seeking such relief. They can also help individuals pursuing such relief with navigating any complex issues that come up during the course of requesting this relief.

Source: Internal Revenue Service, “Relief by Separation of Liability,” Accessed Feb. 10, 2017

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